Debt Distress and Climate-Resilient Development in Sub-Saharan Africa

Summary-->Due to multiple external shocks since the outbreak of COVID-19 in the world economy, SSA is facing acute debt distress and new highs in the cost of foreign capital at exactly the time it needs to mobilise a stepwise level of financing to invest in human, physical and natural capital to meet the region's development and climate goals for the 21st Century. This paper outlines the relative levels of sovereign external debt and service payments between now and 2030 for SSA countries. We calculate the fiscal space level left to meet climate and development financing needs during the same period. The region cannot meet those pressing needs without new forms of liquidity, concessional and grant finance to complement and bend down the cost of capital and comprehensive debt relief. We find thatExternal debt in SSA has more than tripled since 2008, experiencing the largest increase in debt and the largest increase in debt-to fiscal revenue in the developing world—as capital costs have hit new highs.Multilateral Development Banks (MDBs) and private bondholders represent 60% of the region's external debt, with roughly equal shares of 30%. China and the Paris Club are owed 12 and 5%.Sub-Saharan's external debt service is the equivalent to 93% of the average country's climate financing needs, and only ten countries in the region have the borrowing space to finance those needs.The region urgently needs new forms of liquidity, concessional and grant-based development finance that catalyses low-cost private finance; and for those countries in debt distress significant debt relief across all creditor classes that is aligned with the Paris Agreement and Sustainable Development Goals.MDBs will need to provide between $2.4 and $34.5 billion in relief in a manner that does not harm their preferred creditor status or crediting ratings, or the burden of reduction by the private sector and official creditors will be immense.Sub-Saharan Africa's debt distress is in large part a function of external shocks of which the region had no control—such as COVID-19, the war in Ukraine, climate shocks, the globalisation of inflation from advanced economies and advanced economy interest rate hikes. Moreover, the region is responsible for roughly one half of 1% of cumulative carbon dioxide emissions and bares the highest level of the costs of climate change itself (IMF, 2017; Moss, 2020). Given the lack of voice and representation that the region has in the international economic architecture, advanced economies must lead. Further inaction will not only inflict material damage globally in the form of climate change and lost market opportunities, but also further erode the legitimacy of the architecture itself.